Premier Group shares plunged 6.5% on Wednesday after the market got wind that the Competition Commission wants to revoke approval for Premier’s takeover of Rhodes Fruit Group.
That’s because the Commission believes Premier contemplated shutting down the Tulbagh Fruit Canning factory before early March, when the Competition Tribunal approved the deal.
“I’m not sure what they think they can do at this stage,” Premier CEO Kobus Gertenbach tells the FM, referring to the impossibility of unscrambling the Premier/Rhodes Food eggs. He’s adamant there was no consideration of a closure of the Tulbagh business before July.
And, says Gertenbach, most of the workers affected by the closure have already accepted a voluntary separation agreement; “there were no retrenchments.” In addition, many of the farmers who supplied fruit to the cannery have reached agreements with Premier.
According to a statement released by Premier, the Commission also wants the merger to be refiled and considered anew, or for the conditions imposed to be amended. For its part, it says it “strongly disagrees” with the Commission’s “characterisation of the parties’ conduct and the basis for the application and will defend its position before the Tribunal.”
The unprecedented move follows a Commission investigation prompted by a complaint lodged by the South African Clothing and Textile Workers’ Union (SACTWU) on behalf of Cosatu which, says the Commission, revealed that “material” information had not been disclosed to the competition authorities before they approved the merger.
No closure talks, says Premier
According to the Commission, Premier and RFG had discussed the possibility of closing the Tulbagh canning facility before the Tribunal approved the merger.
“This information was material to the Commission’s assessment, particularly because the Commission had expressly requested confirmation of the parties’ post-merger plans for the closure, integration or consolidation of their production facilities,” said the Commission. Not disclosing the information, it says, prevented it and the Tribunal from assessing and addressing the closure’s competition and public interest implications before approval was granted.
But Gertenbach says as there were no such discussions, the Commission cannot have any evidence. He acknowledges that accountants at RFG discussed a variety of options to cut costs but says this was an internal discussion and had nothing to do with the merger or with Premier.
Clearly, the commission is smarting over the merging parties’ assurances, before the Tribunal approved the deal, that “they did not contemplate closing, integrating or consolidating their respective production facilities.”
A spokesman for SACTWU told the FM they strongly supported the Commission’s action. “It’s outrageous that a JSE listed company would not disclose material information to a state regulator, even when directly asked about it.”
The trade union said if the merging parties believed the Tulbagh factory was not sustainable, “they could have raised such concerns with the Commission and possibly have been given a dispensation to close or sell the plant.”
Untested territory
Four months after it received approval, Premier announced that conditions in the canned fruit market had deteriorated to such an extent that closure was the only option. The decision to close the canning factory was “driven by structural and economic pressures in the canned deciduous fruit industry, including changing global demand, export-market pressures, rising input costs, lower utilization and the need for greater scale in an increasingly competitive international market,” said Premier.
Gertenbach added that without the merger there’s little doubt that Rhodes would have been forced to close the factory.
Still, the application to revoke propels the competition authorities into previously untested territory. It also places the merging parties in a difficult and uncertain situation, one that shareholders evidently don’t like given their evident backing for the deal.
As the board indicated in its recent trading update, in the six months since the merger was implemented — on 30 March — much progress has been made in bedding down the two businesses. “The RFG business has subsequently been integrated into the group as the Premier Culinary division, and the benefits of operating as a combined business have begun to deliver the expected financial performance”, said the board in mid-September. Gertenbach tells the FM that RFG is a good business and “we will continue to run it”.